The Difference Between M&A Intermediaries and Business Brokers

When business owners begin to explore the idea of selling their business, they can find themselves overwhelmed by foreign terminology and unsure where to begin. While many people have heard the term “business broker” used to describe someone that buys and sells businesses, this does not cover the full scope of the market.

In fact, depending on the type of company being bought or sold, a business broker might not be the appropriate person to address at all. The mergers and acquisitions industry is much like business brokerage, except it works on a larger scale. The following guide is meant to help explain the differences between M&A Intermediaries and Business Brokers, and determine which they require the assistance of.

What a M&A Intermediary Does

In the simplest terms, M&A is the buying and selling of middle market businesses, meaning those worth over $1 million. To be considered “middle market”, these businesses should also maintain more than ten employees.

Oftentimes, M&A intermediaries are also confused with the term “investment banker.” While it is true that many M&A intermediaries are also considered investment bankers, not all investment bankers are intermediaries. Learn more about the distinction between the two by clicking here.

In order to more accurately identify the difference between intermediaries and brokers, we recommend that you examine the following factors that differentiate an M&A advisor from a business broker.

An M&A deal is much more complex than a basic sale transaction of a main street business, since more is at stake with a larger company. Therefore, the contract includes finer details and is in turn more complex. This can cause the timeline for M&A deals to be much lengthier than in business brokerage. Due to the complexity of M&A deals, an intermediary will handle fewer transactions, while a business broker works with a number of different buyers and sellers at once.

The M&A intermediary will conduct a great deal of pre-sale planning with a seller. This preparation can include a strategic options analysis, marketing plan, business valuations, and professional advice on how to improve the company’s valuation numbers. A business broker performs much less pre-planning.

The M&A intermediary is more likely to market the business to a strategic corporation or a private equity group, rather than an individual person, since the cost of the middle market company’s payout will most likely be more than an individual can afford.

The valuation of a middle market business is more involved than that of a Main Street business. An M&A appraisal will take into account a variety of factors when disclosing a valuation number, rather than the basic street value.

The payout price structure for M&A is based on multiples of EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). It can also be based on a discounted future earnings basis if the company is experiencing fast growth and/or expending large amounts in R&D.

An M&A intermediary is compensated differently than a business broker. Most intermediaries construct their fees based on the Lehman Formula. They may also require an upfront fee to perform a valuation and/or a strategic options analysis in order to list the business for sale, since it is important that this be done strategically without providing too much information that could negatively affect the reputation of the business.

What a Business Broker Does

The basic definition of the term “business broker” can be described as a professional that handles the sale and purchasing of Main Street businesses, or those under $1 million. While many small business owners attempt to sell their business without the assistance of a broker, the process is greatly facilitated with the help of an expert.

The following list identifies ways in which business brokers are different from M&A intermediaries.

A business broker can be a dual agent, which means that he or she will facilitate both sides of the transaction. An M&A intermediary will assist with either the buyer or the seller during the process, depending on which side has employed the intermediary.

Business brokers list businesses for sale on online databases with basic information to entice the buyer. M&A intermediaries use a more strategic and involved process to get the word out without revealing the identity of the company.

Business broker valuations tend to be less involved than those of the M&A industry simply because these businesses costs less and most of their worth is typically derived from cash flow. 

The payout price structure of brokered businesses focuses on DCF (Discretionary Cash Flow) or SDE (Seller’s Discretionary Earnings) rather than EBITDA.

Business brokers typically require success-based fees, about 10-12% of the payout price, in exchange for their services. A business broker will not charge any upfront fees for listing the business for sale unless a business valuation is required.

While both M&A intermediaries and business brokers are important and well-versed in the sale and purchase of businesses, each one has its own unique offerings. A business broker is more appropriate for smaller businesses, while middle market companies should employ an M&A intermediary.

For 37 years, George & Company has been the region's M&A and Business Brokerage leader with experience experts on staff to specifically handle middle market businesses and“Main Street” businesses. No matter what the size of your company, we possess the capabilities that can assist you in the sale of your small to mid-market business. 

Learn more about our expertise today!